Implementing a Consistent Retirement Plan Oversight Process
If you're like many retirement plan advisors, saving time is among your most important goals. One area ripe with opportunity for improving efficiency and scale? Your plan-level investment services. By implementing a consistent retirement plan oversight process, these services will naturally become repeatable and streamlined. Let’s take a look at how leveraging guidelines, technology, and trusted partners can help you put such a process in place.
To begin, clear expectations must be set between sponsor and advisor regarding how investment decisions will be made on behalf of the plan. Two resources typically used to guide these decisions are the investment policy statement (IPS) and an evaluation methodology.
IPS. This document helps plan sponsors ensure that a prudent investment process is in place. It also benefits plan advisors, as it formalizes the process through setting objectives, establishing guardrails, and defining responsibilities.
When it comes to the IPS, there are a few best practices to consider:
- Wherever possible, you should have a similar IPS in place across your entire retirement plan book of business.
- As the IPS is a plan document, the plan sponsor should review and sign off on it.
Advisors often assist in IPS development. In fact, most plan sponsors will follow their advisors’ lead in putting together the IPS.
Evaluation methodology. You and your plan sponsor should establish an evaluation methodology (i.e., the set of metrics by which plan investment funds are to be measured and evaluated). Setting clear expectations, as with the IPS, can help you implement plan investment services in a consistent and repeatable manner across all clients.
Of course, there is no one right way to develop a set criteria for evaluating investment performance, but having multiple criteria sets can be a challenge to monitor and justify. Instead, consider developing a limited number of unique criteria sets; then, adapt and apply them across the board to plans that share similar investment objectives, lineup styles, or participant demographics.
Investment monitoring tools help you assess fund performance against the evaluation methodology defined in the plan’s IPS (most likely in the IPS appendix). This analysis and corresponding reporting provide sponsors with a rationale for the investment decisions they make. Plus, the tools help you efficiently manage and quickly implement investment services across clients. Let’s take a closer look at some of the tool efficiencies that may be beneficial to you.
Plan data integration. Some investment monitoring tools receive data directly from recordkeepers or custodians. As such, these tools can automatically update investment lineups and assets. This capability saves you and your staff the hours of work that would be needed to make routine updates manually.
Points of replication. Most investment monitoring tools allow users to establish a branch-level IPS and criteria set, automatically carrying them across a portion of the users’ retirement plan book of business.
Document vaults and portals. These resources enable you to house documents securely online and allow those documents to be viewable by your clients, 24/7. The portal feature also has organizational benefits, increasing your efficiency and decreasing the staff time spent on fulfilling client requests for plan documents.
Why reinvent the wheel? Recordkeepers and asset managers across the industry make plan investment resources readily available to retirement plan advisors. Do you have trusted partners with whom you frequently work? If so, look to leverage their resources wherever it makes sense.
Target-date fund analysis. Given the unique features of target-date funds, a best practice is to carry evaluation methodology beyond the quantitative scoring of each fund and consider the appropriateness of a target-date series in relation to a plan’s participant population. For example, plans whose participants have longer time horizons (e.g., younger employees or those who are delaying retirement) may be inclined to offer a target-date series more focused on asset accumulation than on capital preservation.
Some asset managers provide thought leadership around such considerations, such as the T. Rowe Price Investment Dialogue document, Target-Date Glide Paths: Balancing Plan Sponsor Goals. Others provide analytical tools, such as J.P. Morgan’s Target Date Compass program, to help account for a plan’s participant characteristics and their particular needs.
Fiduciary support programs. One of the best ways to minimize the time you spend on plan investment services is to have the plan sponsor adopt a co-fiduciary service. Many recordkeepers have established this type of support for ERISA 3(21) and 3(38) fiduciary investment services.
For example, a 3(21) service vendor provides the plan sponsor with a list of approved funds, and the sponsor then makes the final selections. In a 3(38) arrangement, on the other hand, the vendor firm acts as a discretionary investment manager and chooses approved funds for the plan sponsor.
Be sure to ask your recordkeeping partners whether their platforms offer fiduciary support programs, and then consider whether the programs could benefit you and your clients.
Here at Commonwealth, we realize the importance of having a retirement plan oversight process in place. To that end, we recently introduced the PlanAssist Investment Platform—an integrated suite of investment and due diligence resources for our 3(21) fiduciary advisors. This turnkey solution offers everything they need to help them develop consistent and efficient procedures for selecting and monitoring plan investment options.
The PlanAssist Platform includes the following features:
- A customizable IPS template. This template can be used to establish a repeatable process for managing plan sponsor investment decisions. It clearly lays out the roles and responsibilities of both the plan advisor and plan sponsor, as well as the guidelines for the plan’s investment oversight.
- Proprietary investment evaluation methodologies. These methodologies enable the repeatable scoring of active and passive investments. They incorporate the review of a fund’s risk, return, diversification, and expenses, as well as other measures of suitability for an active or passive investment fund.
- The choice of one of three platform-integrated investment monitoring tools. With these tools, advisors can quickly produce analyses and reports. Each tool comes prepackaged with the IPS and evaluation methodologies, meaning that a subscription to any one of the three tools allows our advisors to hit the ground running with investment guidelines already in place.
- Commonwealth’s Retirement Plan Investment Recommended List. This list is designed to help drive efficiency (and quality) into investment recommendations. In addition to vigorous quantitative review, the funds on the list have undergone a detailed qualitative review of their portfolio managers and parent organizations. It includes active and passive strategies, as well as mutual funds and collective investment trusts (CITs). It extends across numerous asset managers, allowing Commonwealth plan advisors the opportunity to further leverage their preferred partners.
Virgil is quoted as saying, “Time passes irrevocably. Few want to waste it.” I think this sentiment sums up nicely the time-management goals of many plan advisors. Implementing a consistent retirement plan oversight process—by setting expectations, leveraging your partners, and using investment monitoring tools—will not only help you save time but will also provide a value-add for your plan sponsor clients.
Do you take advantage of the fiduciary support programs offered by any of your recordkeeping partners? Do you have a similar IPS in place across your entire retirement plan book of business? Please share your thoughts with us below!
Commonwealth Financial Network is the nation’s largest privately held independent broker/dealer-RIA. This post originally appeared on Commonwealth Independent Advisor, the firm’s corporate blog.
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